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The Deal: Bank Earnings Reveal Lackluster M&A Activity

NEW YORK ( The Deal) -- Investment bank chiefs say there are few indicators of a meaningful recovery in M&A activity, with forecasts of double-digit falls in advisory revenue for the full year.

While J.P. Morgan (JPM - Get Report) chief Jamie Dimon said, in the bank's second quarter earnings call July 12, the market was beginning to open with "a lot of M&A chatter", his CFO Marianne Lake was more circumspect on the strength of any deal recovery.

"What we're seeing and feeling in discussions with clients is that deal activity levels have picked up and may be turning and the pipeline feels a little better and solid but not strong," she told investors.

Greenhill & Co. (GHL - Get Report) CEO Scott Bok noted in its quarterly results this week that a large portion of the advisor's M&A revenue had been driven by completion fees, with lower announcement fees in line with subdued activity levels.

Global M&A activity in the second quarter, with 8,539 deals, was at its lowest since the third quarter of 2005 according to Dealogic. Large-ticket transactions meant deal value at a total $629 billion was only its lowest since late 2012, though advisory revenues took a bigger hit--$3.74 billion-- representing the lowest level since the first quarter of 2010.

"For the full year we expect double digit declines in advisory revenue for the nine large banks that are our primary competitors, with declines growing larger during the second half," Bok said. Advisory league table are largely unchanged for the year to date. For the Americas region, JPMorgan, Goldman Sachs (GS - Get Report) and Bank of America Merrill Lynch (BAC - Get Report) retained their top three positions on the same period last year, with Morgan Stanley (MS - Get Report) trumping Barclays (MS - Get Report) and Deutsche Bank (DB) to round out the top six. JPMorgan does not break out its advisory fees while Goldmans' revenues in financial advisory were slightly higher in the second quarter at $486 million.

Bok said the equity rally and continued quantitative easing had dampened deal appetite, while other M&A heads have noted the appeal of cheap recapitalization as a reason for lackluster activity. The Greenhill chief said potential acquirers were reluctant to make acquisitions while valuations were pricey--with asset inflation via stimulus contributing to this. "When [stimulus] does start to wind down we'll see restructuring activity pick up and companies have more confidence in the market valuations of their targets leading to more M&A," he said.
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